Google’s Fantastic Fiber Optic Scheme

by Jeff Reeves | August 24, 2012 7:00 am

If you haven’t heard about Google‘s (NASDAQ:GOOG[1]) fiber-optic pipe dream, you’re not alone. The small-scale effort focuses on a fiber optic network in the Kansas City area, and it has just 7,000 homes signed up for the effort after several weeks.

But it’s time for you to take notice — not just because of what it may mean from an investment side, but what it may mean as a shakeup to dial-up and broadband providers that include AT&T (NYSE:T[2]), Verizon (NYSE:VZ[3]), Time Warner (NYSE:TWX[4]) and Comcast (NASDAQ:CMCSA[5]) among others.

You may scoff at the idea of Google (or any other company, for that matter) challenging the entrenched telecom giants on a capital-intensive enterprise like laying fiber optic cable. The logistics, cost and time involved mean this surely isn’t an immediate threat.

But consider the features of this service, aptly and simply named Google Fiber:

Speeds up to 1 gigabit (that’s over three times faster than Verizon FiOS and almost 20 times faster than dial up)

The cost is just $70 a month with no caps. (I pay $60 monthly through Comcast for my cable Internet service that isn’t bundled)

You can add dozens of HD channels for an extra $50 (competitive with telecom giants)

There are no data caps

You get a free Nexus 7 tablet as your “remote”

You get a free terabyte of storage on Google Drive to store your media

Exciting, isn’t it? There’s also a super-cool ad for the service, set to Just What I Needed by the Cars.

Google has waived its installation fee of $300 as a way to prime the pump for the service, and it’s off to a promising start. Yes, it’s in a tiny Midwestern market, but just as Gmail managed to disrupt email and Android managed to finally challenge Apple (NASDAQ:AAPL[6]) and its dominant iPhone, Google may have the makings of another game-changer here.

Of course, any true success can’t be measured for many years. But it’s worth noting.

And even if Google isn’t the one who redefines Internet access in the U.S., it’s about time somebody started challenging the existing model. According to cloud-computing giant Akamai (NASDAQ:AKAM[7]), the U.S. ranks 15th on a list of nations with the fastest broadband access worldwide[8]. That’s the case even though we pay more per bit of speed than nearly every Western nation, barring New Zealand.

From an economic perspective, it’s about time someone started challenging the speed equation. There’s a critical mass for cloud computing, streaming video and other businesses simply by virtue of the number of people in America with access to high-speed Internet.

And from a consumer perspective, it’s about time someone started challenging the price equation, too. Google isn’t exactly lowering the bar yet — but at least it appears to be providing some decent value. A bit more competition would be a great place to start.

There’s no immediate threat to entrenched telecoms or any short-term benefit for tech companies that rely on high speed Internet users. But I wouldn’t bet against Google’s ability to disrupt this market over the next decade and create an interesting landscape of challenges and opportunities.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[9] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a long position in Apple but no other stocks named here.